Microsoft Makes a $19.7 Billion Bet on Digital Healthcare. Why Deal for Nuance Is a ‘Strategic No-Brainer.’

Microsoft (ticker: MSFT) says that Nuance (NUAN) “is a pioneer and a leading provider of conversational AI,” with particular focus on healthcare applications. “By augmenting the Microsoft Cloud for Healthcare with Nuance’s solutions, as well as the benefit of Nuance’s expertise and relationships with EHR [electronic health record] systems providers, Microsoft will be better able to empower healthcare providers through the power of ambient clinical intelligence and other Microsoft cloud services,” the company said.

Wedbush analyst Dan Ives enthused about the transaction in a research note Monday morning. “The Nuance deal is a strategic no-brainer,” which “fits like a glove ” into Microsoft’s healthcare vertical market, he wrote. “Clearly, Redmond is on the offensive around M&A with the company in a clear position of strength to capitalize on its entrenched position in the cloud going forward with Nuance another feather in its cap.”

Microsoft said the deal would double its total addressable market in healthcare to nearly $500 billion.

“Nuance provides the AI layer at the healthcare point of delivery and is a pioneer in the real-world application of enterprise AI,” Microsoft CEO Satya Nadella said in a statement. “AI is technology’s most important priority, and healthcare is its most urgent application. Together, with our partner ecosystem, we will put advanced AI solutions into the hands of professionals everywhere to drive better decision-making and create more meaningful connections, as we accelerate growth of Microsoft Cloud for Healthcare and Nuance.”

Microsoft said Nuance would continue to be run by current CEO Mark Benjamin, who will report to Scott Guthrie, Microsoft executive vice president of cloud and AI.

For the fiscal first quarter ended December 31, Nuance reported revenue of $345.8 million, down 4% from a year earlier. Non-GAAP profits were $62.5 million, or 20 cents a share.

Microsoft says it expects the deal to be less than 1% dilutive to June 2022 fiscal year results, and accretive to fiscal 2023 non-GAAP earnings. The company said the deal would not affect its share repurchase program.

The deal is expected to close by the end of calendar 2021. The acquisition has been approved by the boards of both companies, but remains subject to approval by Nuance shareholders and regulatory review.

In trading Monday morning, Microsoft shares were down 0.3%, at $255.09. Nuance was up 16.8%, to $53.28.

Write to Eric J. Savitz at [email protected]